IRS gives a limited partnership 60 more days to file Form 8996 and self-certify as a Qualified Opportunity Fund

Plain-English summary

An entity self-certifies as a Qualified Opportunity Fund (QOF) by filing Form 8996 with its timely filed tax return, which lets investors defer and potentially reduce tax on capital gains reinvested in opportunity zones. Here a limited partnership was formed to be a QOF, but its tax advisor mistakenly believed that because the partnership had no income or activity in its first year, it did not need to file a Form 1065 at all, and so filed neither the return nor the Form 8996. The mistake surfaced when the IRS notified a limited partner that the partnership's ID number was not associated with any self-certified QOF. The partnership asked the IRS for relief under Treas. Reg. § 301.9100-3. The IRS found the taxpayer reasonably relied on a qualified tax professional who failed to make the election, so it acted reasonably and in good faith, and relief would not prejudice the government. It granted 60 days from the date of the letter to file a Year 1 return with a completed Form 8996 making the QOF election. The IRS expressed no opinion on whether investments into the fund qualify or whether the entity otherwise meets the QOF requirements. This is routine 9100 relief for a missed self-certification.

Ruling snapshot

• Question: May a limited partnership get an extension under Treas. Reg. § 301.9100-3 to file a late Form 8996 self-certifying as a Qualified Opportunity Fund, where its advisor wrongly thought no return was required?
• Outcome: Approved (60-day extension granted)
• Key authorities: IRC § 1400Z-2; Treas. Reg. § 1.1400Z2(d)-1(a)(2)(i); Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                        Department of the Treasury
                                                                 Washington, DC 20224

 Number: 202332012                                               Third Party Communication: None
 Release Date: 8/11/2023                                         Date of Communication: Not Applicable

 Index Number: 9100.00-00                                        Person To Contact:
                                                                 ----------------------, ID No. -----------------
 ----------------------                                          Telephone Number:
 --------------------                                            --------------------
 -------------------------------                                 Refer Reply To:
  --------------------------------------                         CC:ITA:B08
                                                                 PLR-122976-22
                                                                 Date:
                                                                 May 16, 2023




                 TY: -------

 Taxpayer                            =     -----------------------------------------------
 Individual Manager                  =     -------------------------
 Tax Advisor                         =     ---------------------------
 GP                                  =     --------------------
 LP                                  =     -------------------------------------------------------------
 Tax Advisor Firm                    =     ----------------------------------------
 State                               =     --------
 Date 1                              =     --------------------------
 Date 2                              =     --------------------------
 Date 3                              =     --------------------------
 Date 4                              =     ------------------
 Month 1                             =     --------------
 Year 1                              =     -------
 Year 2                              =     -------

Dear ----------------:

This responds to the request dated Date 1 by Taxpayer for relief pursuant to
§ 301.9100-3 of the Procedure and Administration Regulations to file Form 8996,
Qualified Opportunity Fund. Specifically, Taxpayer requests that the Internal Revenue
Service (Service) grant to Taxpayer an extension of time to make an election under
§ 1400Z-2 of the Internal Revenue Code (Code) and §1.1400Z2(d)-1(a)(2) of the
Income Tax Regulations to self-certify Taxpayer as a Qualified Opportunity Fund (QOF)
and for Taxpayer to be treated as a QOF, effective as of Month 1 in Year 1.

                                                      FACTS

The submission, which includes affidavits, reflects the following facts.
PLR-122976-22                                2

Taxpayer, a limited partnership treated as a partnership for federal income tax
purposes, was formed on Date 2 pursuant to the laws of State. Taxpayer employs the
cash basis method of accounting and has a calendar year-end. Individual Manager is
the manager of GP, the general partner of Taxpayer and the partnership tax
representative of Taxpayer. LP is a limited partner in Taxpayer.

Individual Manager engaged the services of Tax Advisor Firm, which was responsible
for the tax filings of Taxpayer from its formation and ending after Year 1. Individual
Manager retained Tax Advisor Firm because of the qualifications of the professionals at
the firm and their exhibited competence in tax, accounting and advisory services.
Individual Manager relied upon Tax Advisor Firm to make or file the election required in
order that Taxpayer be classified as a QOF.

The submission also includes an affidavit from Tax Advisor, a partner at Tax Advisor
Firm, who served as Taxpayer’s certified public accountant and tax advisor for Year 1
and Year 2. Tax Advisor was informed that Taxpayer was intended to be certified as a
QOF. Tax Advisor learned of such intention through discussions, the filings of members
of Taxpayer for Year 1, and email correspondence.

Taxpayer’s submission to this office includes a copy of an email dated Date 3, in which
Tax Advisor asked Individual Manager if an investment was made in a QOF. On the
same date Individual Manager responded to Tax Advisor via email, noting that a
number of new business entities were created and “. . . this QOF needed to be a
regarded entity.”

Tax Advisor relied upon § 1.6031(a)-1(a)(3) of the Income Tax Regulations, which
states that a partnership that has no income, deductions, or credits for federal income
tax purposes for a year need not file a return, as the basis for not filing a Form 1065 and
Form 8996 to self-certify Taxpayer as a QOF for Year 1. Tax Advisor’s decision to not
file, or recommend that Taxpayer file, a Form 1065 for Year 1 ignored the Service’s
Instructions for Form 1065 for Year 1, which indicate that a partnership self-certifying
itself as a QOF is required to file a Form 1065 and attach Form 8996, even if the entity
had no income or deductions for the year.

On Date 4 the Service sent to LP a notice, specifically Letter 6502, indicating that the
taxpayer identification number (TIN) of the entity listed in LP’s Form 8997, Initial and
Annual Statement of Qualified Opportunity Fund (QOF) Investments, for Year 1 was not
associated with a self-certified QOF in the Service’s records.

Taxpayer represents that it is subject to the centralized partnership audit regime under
sections 6221-35 of the Code for Taxpayer’s taxable year ending Year 1.

                                  LAW AND ANALYSIS

Section 1400Z2(e)(4)(A) of the Code directs the Secretary to prescribe regulations to
PLR-122976-22                                 3

carry out the statute’s purposes, including rules for the certification of QOFs. Section
1.1400Z2(d)1(a)(2) of the Income Tax Regulations provides the rules for an entity to
self-certify as a QOF. Section 1.1400Z2(d)-1(a)(2)(i) provides that an entity electing to
be certified as a QOF must do so annually on a timely filed return in such form and
manner as may be prescribed by the Commissioner of Internal Revenue in the forms or
instructions, or in publications or guidance of the Service, published in the Internal
Revenue Bulletin.

To self-certify as a QOF, a taxpayer must file Form 8996 with its tax return for the year
to which the certification applies. The Form 8996 must be filed by the due date of the
tax return (including extensions). The information provided indicates that Tax Advisor
did not file Taxpayer’s Form 1065 or Form 8996 due to a mistaken belief that a return
was not necessary for Taxpayer’s initial year if the partnership had no economic activity.

Because § 1.1400Z2(d)-1(a)(2)(i) of the Income Tax Regulations sets forth the manner
and timing for an entity to self-certify as a QOF, these elections are regulatory elections,
as defined in § 301.9100-1(b) of the Procedure and Administration Regulations.

Sections 301.9100-1 through 301.9100-3 of the Procedure and Administration
Regulations provide the standards that the Commissioner will use to determine whether
to grant an extension of time to make a regulatory election. Section 301.9100-3(a)
provides that requests for extensions of time for regulatory elections, other than
automatic extensions covered in § 301.9100-2, will be granted when the taxpayer
provides evidence (including affidavits) to establish that the taxpayer acted reasonably
and in good faith and the grant of relief will not prejudice the interests of the
Government.

Under § 301.9100-3(b)(1)(v) of the Procedure and Administration Regulations, a
taxpayer is deemed to have acted reasonably and in good faith if he reasonably relied
on a qualified tax professional and the tax professional failed to make, or advise the
taxpayer to make, the election.

A taxpayer is deemed not to have acted reasonably and in good faith pursuant to the
provision in § 301.9100-3(b)(3) of the Procedure and Administration Regulations if the
taxpayer—

  (i) seeks to alter a return position for which an accuracy-related penalty has been or
  could be imposed under § 6662 of the Code at the time the taxpayer requests relief,
  and the new position requires or permits a regulatory election for which relief is
  requested;

  (ii) was informed in all material respects of the required election and related tax
  consequences but chose not to make the election; or

  (iii) uses hindsight in requesting relief. If specific facts have changed since the
PLR-122976-22                                 4

  original deadline that make the election advantageous to a taxpayer, the Service will
  not ordinarily grant relief.

Section 301.9100-3(c)(1) of the Procedure and Administration Regulations provides that
the Commissioner will grant a reasonable extension of time to make the regulatory
election only when the interests of the Government will not be prejudiced by the
granting of relief.

Section 301.9100-3(c)(1)(i) of the Procedure and Administration Regulations provides
that the interests of the Government are prejudiced if granting relief would result in a
taxpayer having a lower tax liability in the aggregate for all taxable years affected by the
election than the taxpayer would have had if the election had been timely made (taking
into account the time value of money).

Section 301.9100-3(c)(1)(ii) of the Procedure and Administration Regulations provides
that the interests of the Government are ordinarily prejudiced if the taxable year in which
the regulatory election should have been made or any taxable year that would have
been affected by the election had it been timely made are closed by the period of
limitations on assessment under § 6501(a) before the taxpayer’s receipt of a ruling
granting relief under this section.

Based on the facts and information submitted and the representations made, we
conclude that Taxpayer has acted reasonably and in good faith, and that the granting of
relief will not prejudice the interests of the Government. Taxpayer reasonably relied on
a qualified tax professional who failed to prepare and include a Form 8996 for filing with
the Taxpayer’s Year 1 Form 1065. Accordingly, based solely on the facts and
information submitted, and the representations made in the ruling request, Taxpayer
has satisfied the requirements for the granting of relief.

Consequently, Taxpayer is afforded a period of sixty (60) days from the date of this
letter to file a return for Year 1 and attach to it a completed Form 8996, such that the
Taxpayer can make the election under § 1400Z-2 and § 1.1400Z2(d)-1(a)(2)(i) to self-
certify as a QOF for Month 1 of Year 1. Taxpayer should include a copy of this letter
ruling with the return filed at the Service Center where Taxpayer files its returns.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Specifically, we express no opinion, either express or implied, concerning
whether any investments made into Taxpayer are qualifying investments as defined in
§ 1.1400Z2(a)-1(b)(34) of the Income Tax Regulations or whether Taxpayer meets the
requirements under § 1400Z-2 of the Code and the regulations thereunder to be a QOF.
We express no opinion regarding the tax treatment of the instant transaction under the
provisions of any other sections of the Code or regulations that may be applicable, or
regarding the tax treatment of any conditions existing at the time of, or effects resulting
from, the instant transaction.
PLR-122976-22                                  5

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the letter
ruling.

The rulings contained in this letter are based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the material submitted in
support of the request for rulings, it is subject to verification on examination.

                                        Sincerely,



                                        Erika C. Reigle
                                        Senior Technician Reviewer, Branch 8
                                        Office of Associate Chief Counsel
                                        (Income Tax & Accounting)




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